India has begun discussions with China about the possibility of forming an Asian oil buyers’ club that could include Japan and South Korea to negotiate better terms with OPEC.
Indian Oil chairman Sanjiv Singh travelled to Beijing this month to meet China National Petroleum Corp. (CNPC) chairman Wang Yilin to discuss the idea, PTI reported last week, citing an unnamed source. The idea of regional co-operation was floated by Indian Minister of Petroleum and Natural Gas Dharmendra Pradhan at the International Energy Forum (IEF) in April.
PTI said Singh and Yilin had also discussed “debottlenecking infrastructure to facilitate more US crude”, given the high shipping costs. But the focus was on producers’ cartel OPEC.
Speaking at the IEF earlier this year, Pradhan asked: “Why should [the] biggest consumers pay more? Why should these countries pay more in the name of an Asian premium? All four major Asian economies should come together.”
Indian Prime Minister Narendra Modi has also called for a global consensus on “responsible pricing”. The Asian premium is estimated to cost Asian oil importers US$5-10 billion per year.
Benchmark Brent is trading at around US$75 per barrel after climbing as high as US$80 per barrel in recent weeks. These are highs that have not been seen since 2014, when prices tanked on the back of supply increases by OPEC.
India imports more than 80% of its oil needs, with eight of its top suppliers from OPEC. The bloc supplied 83% of India’s total crude oil imports, 98% of LPG imports and 74% of LNG imports in fiscal 2017-18.
The South Asian giant has twice attempted to ally with China to take on OPEC. The moves failed to gain traction owing to strained bilateral relations, including border problems and the South China Sea territorial dispute, which has seen India side with Vietnam.
Pressure on OPEC
Apart from communicating with China, India continues to urge OPEC to “balance the interests of both producers and consumers”.
Pradhan conveyed these concerns last week when he met ambassadors of OPEC countries in New Delhi. In a tweet the minister said “market fundamentals” did not support the current high prices. He said rising crude prices were unstainable and were causing “undue hardship for developing economies”. He added that he had raised the issue of the Asian premium and had urged the organisation to move to “transparent and flexible” oil and gas pricing.
Pradhan will address the issue during the seventh OPEC International Seminar in Vienna this week, where he will meet OPEC ministers and secretary general Sanusi Barkindo.
The Indian delegation will be keeping a close watch on developments on June 22, when OPEC’s production policy will be set out. With the organisation widely anticipated to increase production quotas, international oil prices have come off the boil slightly, which in turn will help lift the share price of India’s state-run oil marketing companies (OMCs).
Fuel price high
Fuel prices in India, meanwhile, remain near record highs. Gasoline prices in Delhi, Kolkata, Mumbai and Chennai climbed from an average of 77.97 rupees (US$1.15) per litre on May 13 to a record high of 81.79 rupees (US$1.20) per litre on May 29, before easing to 79.70 per litre (US$1.17) per litre on June 18.
Diesel prices firmed from average of 68.58 rupees (US$1.01) per litre on May 13 to 72.04 rupees (US$1.06) per litre on May 29 before easing to 70.45 rupees (US$1.04) per litre on June 18.
Several options have been mooted to buffer the fuel price rise that has affected urban consumers. These include slashing excise duties, including petroleum products under the GST framework or capping prices. As it stands, the government’s only concrete action has been to hold talks with China and engage with OPEC.
While a tie-up between India and China should help to swing the balance of negotiating power back in the direction of the oil buyers, there are few signs to suggest the two sides will do more than discuss the idea. For now, New Delhi seems content to wait and watch in the hope that high oil prices will slip before it tinkers overly with domestic or foreign policy.